The Father of Leasing in India Farouk Irani and his First Leasing are in Deep Trouble with Potential Criminal Implications

Sad to Note that Farouk Irani is in trouble and has resigned as the MD of First Leasing...even though I have met him just once in the late 1990s when we had a long three hour engrossing conversation on Leasing and on India Opening out …..he is known as the Father of Leasing in India and has authored a Book on Leasing called ‘Inside Leasing’…he was impressed with the depth of our talk and invited me to visit him in Chennai to brainstorm further and even explore a business or working relationship…I never did take him up on the Invite even though I was quite well conversant with the Accounting and Income Tax Issues that were plaguing the Leasing Companies as my Forte was Indian Equities

 

He founded First Leasing ,a part of the A C Muthiah Group in Chennai and was it’s MD since 1973

Most Leasing Companies proliferated in the 1980s to take advantage of the nascent Industry and the Accounting Treatment given to Financing Lease as Different to Operating Lease where Fixed Assets leased were allowed to be capitalised and depreciation claimed on them to lower Taxes even though the valid argument was that the Possession and Benefits of such Assets lie with the Lessee and not the Lessor and therefore should be capitalised in their books….Huge Tax Investigations followed and most Companies folded up

 

Mr Irani and First Leasing has been accused of diverting Hundreds of Crores to unrelated activities .His Resignation does not absolve him of accountability and responsibility to First Leasing…he denies any wrongdoing ! ….but then where are the Borrowed Monies truly applied ? 

 

The Company has no whistle blower policy and it were the Banks,led by State Bank of India, who had lend that asked for explanations from Mr Irani as to the specific application of the borrowed funds to which Mr Irani was unable to give a satisfactory answer

 

Ironically and Interestingly there has been no default in repayments to the Banks !…except for they appear to have been borrowing from one to repay the other !

 

Farouk Irani resigns as MD of First Leasing

RBI appoints special auditor for First Leasing; firm’s MD allowed to quit

First Leasing’s MD steps down | Business Standard First Leasing’s Farouk Irani admits Rs 1000-crore gap in balance sheet The Share Price of First Leasing reached a High of 116 in 2011 and even in December 2012 was Rs 77….It’s dropped to Rs 15 levels currently (FV Rs 10) giving a Market Cap of just Rs 34 crs on an Equity of Rs 22.8 crs First Leasing has been paying dividend every year from 1975 when it began with 18% and took it to a high of 35% in the mid 1990s only to drift it back downwards and for FY 13 it has proposed 18% …The Company has weathered storms in the 1980s when it had to bail out a Group Company of A C Muthiah’s Father with paying of Rs 170 crs to Depositors On Hindsight Mr Irani kept Equity Low and preferred the Debt Route for Funds rather than seek Private Equity to derisk the business….Profit levels remained at a stable Rs 30 + cr levels except in FY 2011 when it crossed Rs 70 crs as interestingly in this year First Leasing  earned an extraordinary profit of Rs 53.42 crs on sale of unquoted at the time 295000 shares of CARE which had cost it just Rs 25 lakhs ….The Unit cost was below Rs 10 while Sale was at Rs 1800 +per share .CARE came out with an IPO in December 2012 at Rs 750

Financials reveal that the Networth of First Leasing on March 31,2013 was  Rs 364 crs with Equity at Rs 22.8 crs and Reserves at Rs 341.2 crs….PAT was Rs 34.7 crs (Rs 31.6 crs) giving an EPS of Rs 15+ and a P/E of 1 ! and a Book of Rs 160 and a P/BV of  0.1 ! read more